Equity hit by Tanzanian subsidiary loan defaults

Customers of Equity Group’s #ticker:EQTY Tanzanian unit defaulted on nearly a third of loans in the first quarter, a balance sheet deterioration that seeped through to the parent company’s consolidated results.

The subsidiary’s stock of bad debt stood at 31.6 percent of the total loan book of Sh14.8 billion by the end of March compared to 12.6 percent in its unit in South Sudan, 8.5 percent in Kenya, 8.1 percent in DR Congo, 3.5 percent in Rwanda and 1.7 percent in Uganda.

Reporting as a combined entity, Equity Group’s non-performing loans rose by Sh5.4 billion to Sh29.4 billion in the three months to March.

This translates to a non-performing loan ratio of nine percent.

The lender said the Tanzanian subsidiary has been hit by the ban on raw cashew nut exports last year and the move to relocate core government functions from the commercial capital Dar es Salaam to Dodoma.

“The context of the issue in Tanzania is economic, which has significantly affected the SME value chains, especially due to the cashew nut ban and relocation of government to Dodoma from Dar es Salaam,” said Equity chief executive James Mwangi on Thursday during the release of quarter one 2019 financial results.

Economic activity

Eight of Equity’s 15 branches in Tanzania are in Dar es Salaam, hence the exposure to the Dodoma move, which has drawn government-linked economic activity away from the city.

The unit saw its net profit drop by 29 percent to Sh100 million during the quarter. Customer deposits were down by 25 percent to Sh15.5 billion, while the loan book contracted by eight percent to Sh14.8 billion.

Equity is expanding its footprint in the country by acquiring BancABC Tanzania from Atlas Mara.

The deal also targets acquisition of BancABC Zambia and BancABC Mozambique, as well as a 62 per cent stake in Banque Populaire du Rwanda.

Equity in the meantime reported a five percent rise in net profit to Sh6.2 billion in the first quarter.